Despite assurances by the amiable Sartaj Aziz and the Planning Commission whiz-kid Hafiz Pasha, the ranks of the doom and gloom brigade are swelling by the day. When both gentlemen swear that all will be hunky-dory in two years time, people wonder whether their heads will still be above water when they float into the promised land. Are they being unduly pessimistic?
The figures certainly look very bad. By next month, the fiscal deficit will probably shoot up to 8% of GDP. Inflation is trotting at above 20% per year and threatening to gallop into the sunset. Interest rates are prohibitive at 22%. The trade gap is forecast at above US$ 4.5 billion because exports are below target by about US$ 3 billion. And GDP growth in 1996-97 may only be 3%. All this, despite the fact that there are no floods or bad crops to which our economic decline could be attributed.
Worse, the government’s credibility is plunging by the day. We were told that the Debt-Relief fund would yield at least US$ 1 billion. In fact, it has brought in less than 25% of the amount targeted — and most of that is at rates of interest much above LIBOR. We were told that the government had launched a jehad against loans. In fact, it has borrowed at least Rs 30 billion from domestic sources and about US$ 500 million from external sources in the last three months — and now the President and PM are about to embark upon trips to the UAE, Saudi Arabia and Brunei to try and borrow more money. We were told that import duties had been reduced across the board by about 20%. Now a number of SROs have been issued to reverse many earlier orders. We were told that agricultural income tax would be effectively levied in all the provinces. Now we hear that powerful landlords across the country are refusing to pay up while PML parliamentarians are unanimously demanding concessionary loans without interest. We were told that bank loan defaulters would be forced to cough up or else. But a good law to this effect has still to see the light of day. We were told that patriotic businessmen would voluntarily pay more taxes this year. Now we hear that business is in such a bad way that it cannot possibly fill the coffers. We were told that WAPDA would be compelled to reduce its line losses and power tariffs would not be raised until the budget. In fact, WAPDA has failed to reduce theft and leakages even as it has surreptitiously increased rates by 2% every month. In addition, gas rates have been raised by 10% and KESC rates are up by 16%. Prices of atta, ghee, etc., have also gone up despite repeated assurances to the contrary.
Let us face facts. Mr Sharif’s supply-side economics cannot provide answers to the short-term threat of external default facing the country. If we are lucky, external borrowings from friendly Muslim countries may just suffice to pay off debt payments scheduled in the next three months or so. What happens then?
Mr Aziz is confident that the IMF will come on board with ESAP and bail out Pakistan in September. But he is not telling us what political and economic price the IMF may exact for its balance of payments support.
We’ll lay it out for you. The IMF is likely to set a number of tough conditionalities. It will want to see evidence that the government is serious about reducing the fiscal deficit to 5 per cent by 1998. This means that the budgetary allocation for defense will have to be cut in real terms next month. It means that the Annual Development Plan will have to be reduced substantially. It means that the State Bank will not be allowed to borrow or print money liberally. It means that state corporations will have to lay off hundreds of thousands of employees. It means that power rates will have to rise drastically. It means, above all, that businessmen and traders and agriculturists and loan defaulters will have to be compelled to pay their dues.
This means that Mr Sharif will, in due course, be forced to undertake much the same sort of reform programme which he blithely refused three months ago. The only difference is that the price he will have to pay for undertaking it in September will be much more exacting than the price he would have had to pay six months ago when things were not so bad.
Mr Sharif has made one fundamental error. He has frittered away the political and economic leverage conferred upon his government by his huge mandate. Instead of telling the people the truth of the economy which he inherited and asking them to tighten their belts at the very outset, he has led them up the garden path and is now afraid of coming clean. Our fear is that if he refuses to come to grips with reality quickly, he might take us down with him.